IRS Rules in Favor of Consumer-Driven Health Plans

In a decision that could change the benefit landscape of the nation's workplaces, the Internal Revenue Service ruled on Wednesday, June 26 that employers who participate in high-deductible health care insurance policies may create Health Reimbursement Arrangements (HRAs) with rollover rights for their employees.

For an HRA to qualify for the rollover treatment, employers must provide employees with a high-deductible health insurance policy with lower premiums than the typical low-deductible health plan popular in the workplace today. In addition, employers will fund a health savings account called an HRA with money that can be used to pay for medical expenses that are not covered by the insurance plan due to the high deductible. A key factor in this plan is that employees will be entitled to rollover unused HRA money from one year to the next, tax-free.

So far few employees have signed on to these new plans, awaiting the IRS decision. Nationally, only a few hundred thousand employees participate in such a plan. It is assumed that with IRS approval of the rollover feature of the HRA plans, many more employers will opt for the high deductible insurance plans.

The new plans will be funded entirely by employers with no payroll deductions, and will provide insurance coverage for only high-cost medical expenses.

One theory behind the new plan is that by shifting the burden of smaller, routine medical expenses to the employee, to be funded through the employee's own HRA account, employees will be less frivolous and more cost-conscious in their decisions about using medical care services.